How do we mitigate by reducing the impact of risk(Risk response planning)?

Question

Risk mitigation is a strategy for reducing the probability or impact of risks.

I understand by what reducing the probability of risk means. For eg-: Consider a risk of theft while working in an area with higher crime rates. To reduce the probability of risk, you hire a security guard. It doesn't necessarily remove the risk, but it reduces the probability of risk of theft.

But what about reducing the impact of risk? What does this mean? Can you elaborate with an easy example like I shared above?

Say there is a risk of theft in your construction area, how will you reduce the impact of risk here? (Or do any other examples).

Rita Mulcahy's book gives examples about mitigating impact. They are

Train the team on conflict resolution strategies.

Assign a team member to visit the seller's manufacturing facilities frequently to learn about a problem with delivery as early as possible

Answer 1

It depends on the threat and what is at threat. For example, with a storm, lessening impact could include enhancing your property with storm-level products--hurricane proof roofing or windows. With theft, you might leave your expensive jewelry at home and use stuff you care less about losing.

Transfer is a mitigating and contingency action, though PMBoK does not define it that way. The idea of transferring your risk is essentially buying insurance. It mitigates your impact because a 3rd party will make you whole or near whole again. It is contingency because it occurs after the loss. I think PMBoK definitions make this more complicated than it has to be. Therefore, transferring risk is another impact reducing mitigator.

Answer 2

Typically within a project, the impact is measured in either cost or delay (or both) should the risk actually crystallise. So any action to reduce the cost arising if the risk arises, or to reduce the delay caused by the risk arising, is going to mitigate the impact. So in your example, while a security guard will hopefully reduce the likelihood of theft, the impact will be reduced by holding stocks in multiple locations or having a just-in-time supply chain (either of which may introduce a separate set of risks!).

Answer 3

Good question - this is subtle, and I think it is good to pull it apart the way you have.

Considering the risk presented by theft, my first step is always to normalize the risk into a Given . . . If. . .then. . . format. This is just an analytical tool/technique that helps me to ensure that I understand the problem before I try to solve it.

Given that the project requires valuable supplies, If the supplies are stolen, then the company will be financially harmed, and the project will be delayed until the supplies can be replaced.

Assume that you've already taken action to reduce the probability of the theft. How can we reduce the impact?

1. Limit the value of good stored in the high crime area. This limits the company's financial liability (it has a side effect of also reducing the probability of theft, but our goal with this action is to limit financial losses).

2. Strengthen your supply pipeline. If loss of critical supplies will halt work, then store the minimum supplies on site, and store a secondary supply in a (more secure/less convenient) supply depot.

3. Look for alternatives - Are there alternative supplies that can be used that will limit the financial loss? Alternative procedures?

• Could the processes that rely on the high cost supplies be performed offsite? Could you pre-process offsite and ship the finished goods? For example, my son used to work in construction and there was a risk of people stealing copper from the company. One solution might be to not store copper on site, but to pre-wire the various equipment and ship them ready for installation.

• Can you design with two workstreams, such that the workstream that relies on high cost supplies is performed separately with more security, but a second workstream is performed with lower security and lower value materials? (For example, if the high cost supply were a controlled drug (e.g. oxycontin), you could treat patients that required aspirin and bandaids on site, but patients that required oxycontin could be triaged to a secondary site with stronger security)?

• Can you use a dynamic procedure? Accept the problem so long as loss/shrinkage is less than some threshold, but if loss exceeds the threshold implement additional loss prevention procedures? (Audits, oversight, two person rules, signed receipts for supplies)? This limits your losses. (this is very common, not in the construction field, but in any field where quality control results in loss.)

I could probably spin off another half dozen loss limiting examples, but they become increasingly situation specific. The key principle is to figure out what action you can take that will limit the loss (financial, schedule, reputational, etc.) to the company.

I hope that helps - let me know if I've misunderstood the question.